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Section1602 to be center of Wednesday’s SIC hearing

The federal low income housing tax credit program called Section 1602, administered locally by the Development Bank of American Samoa (DBAS), is the subject of this Wednesday’s Senate Investigative Committee (SIC)  hearing with two witnesses subpoenaed to testify.

The program is funded through the American Recovery and Reinvestment Act of 2009 (ARRA).

“This federal program is very important for American Samoa and there have been public complaints lodged with the Senate early this year regarding the administration and operation of this program,” SIC chairman Sen. Lualemaga Faoa told Samoa News last week.

Asked what issues will be the target of the probe, Lualemaga said, “SIC will be looking into the administration of this program, how it has been carried out, the status of the funding and if our local government remains in full compliance with all federal regulations pertaining to Section 1602.”

One of the concerns raised in the Senate this year was that incorrect administration of this grant will result in the territorial government — with limited financial resources — having to repay money to the federal government.

Witnesses subpoenaed to testify are DBAS president Lolo M. Moliga and Pat M. Galeai, executive director of the American Samoa Economic Stimulus and Recovery Office (ASESRO).

ASESRO is the ASG entity that oversees and monitors local spending of the federal American Recovery and Reinvestment Act (ARRA) funds. Section 1602 is funded by ARRA money.

“You are... advised that you may appear with counsel of your choosing to advise you of your rights,” according to the subpoenas both dated June 20 and served on the witnesses on that day.

Lolo, a candidate for governor in the 2012 gubernatorial race, is scheduled to step down as DBAS president effective June 30, according to his resignation letter to DBAS board chairman Malemo L. Tausaga.  (See Samoa News story June 6th edition for full details of the letter.)

SIC also subpoenaed financial records and other documents from DBAS and ASESRO. Additionally, DBAS is to provide the grant agreement with the U.S. Treasury on Section 1602; communication and records establishing DBAS’ authority as the designated State Housing Credit Agency; and  policies, procedures and criteria for selection of a project for sub-award.

Moreover, records of policies and procedures ensuring the sub-award was consistent with IRC Section 42(m) that the project sub-award does not exceed the amount necessary to ensure financial feasibility of the project and its viability or success as a project throughout the credit period.

SIC also wants records of  policies and procedures:

•            ensuring a sub-awardee had paid or met the 15% project matching requirement or other matching requirements of the U.S. Treasury;

•            making a determination that applicants for sub-awards had demonstrated a good faith effort to obtain investment commitments for tax credits in lieu of a sub-award and the determination by DBAS that the applicant had made such effort;

•            performance of asset management functions required by U.S. Treasury;

•            ensuring effective control and accountability for all grant funds; and

•            ensuring projects are constructed with all required permits and in compliance with such permits and that all required contractors and tradesmen licenses have been properly obtained.

According to the subpoena, SIC also wants records of receipt by DBAS of all grant funds; records of DBAS disbursement of grants for each project awarded; any project subject to recapture of grant awards for failing to maintain the project as a qualified low-income building or being otherwise non-complaint with project requirements; and any correspondence or reports of audits or other evaluations of the program by any local or federal agency.

ASESRO is being required to provide similar reports and information including any reports of ASESRO project or building inspectors of site visits and status evaluations for all sub-awardee projects.

According to the subpoenas, SIC “intends to investigate and inquire into any and all matters pertaining to the administration, management and status” of the Section 1602 program from the beginning to the present as well as other areas relevant to DBAS and ASESRO.


According to a Summary Sheet of the program, handed out by DBAS president Lolo during a hearing on the program in the Fono’s last session, the grant is called theLow Income HousingTax Credit Program, Section 1602. The territory was awarded $30,778,499 for this one time grant and it is administered by the U.S. Treasury department. An executive order established DBAS as the administering agency for the program.

The summary sheet states, in a section called, “Most Frequently Asked Questions”, that to build the houses or units for low income families, the program is to pay only up to 85% of the cost of units, with the developer having to pay 15%. Noted is that “if DBAS determines that Section 1602 paid more than 85% of the project cost, the difference must be collected from the project owner and [the money] returned to the U.S. Treasury.” There is no mention of the government having to pay the difference.

The sheet also states that all of these projects, funded with Section 1602 funds, must be completed by December 2012; and if they are not finished, the funds must be returned to the U.S. Treasury. (Not explained clearly is if the full amount used or what is left of the funds is what must be returned.)

The summary sheet does not state if the purchase of the land or the land lease for the project could be included in the owner’s 15% requirement. Only that project owners had to show their right to use the land, through deed or lease, to qualify for the funds, and that the grant funds could not be used to buy the land or cover the costs of the lease.

In May 2011, DBAS was stopped from drawing down and disbursing funds for the Section 1602 program without review and approval of theAmerican Samoa Economic Stimulus and Recovery Office, the U.S. Treasurer’s single point of contact, who is ASESRO Executive Director Pat Galeai.

DBAS was also instructed to submit all previous requests for payments and supporting documents, and payment information for ASESRO review.

At the center of the U.S. Treasurer’s directive, seems to be questions of the way individual applications were ranked and the possible conflicts of interest, with the US Treasury giving the bank up to June 30, 2011 to submit all requests for payments of awardees who are members of the DBAS board, or staff, and spouses, parents, or dependants of board members or employees, as well as attorneys, consultants, contractors or affiliates of bank directors and employees.

During the hearing, in which the Summary Sheet was given out, Lolo was not asked about the U.S. Treasury directive.